F3F 100% (40/40)

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Final Exam

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Choice Textbook Chapter #
1. 1. Which is the ultimate goal of a commercial bank? Enter Letter 0 1 Financial Institutions, Markets, & Money 13
1. A A long-term growth
1. B B deposit growth
1. C C bank safety
1. D D long-term profit maximization
2. 2. The largest deposit source of funds for commercial banks is Enter Letter 0 2 Financial Institutions, Markets, & Money 13
2. A A time deposits.
2. B B demand deposits.
2. C C U.S. Treasury deposits.
2. D D interest-bearing transaction deposits.
3. 3. Banks generate revenue from credit cards from all the following except Enter Letter 0 3 Financial Institutions, Markets, & Money 13
3. A A merchant discount fees
3. B B sale of credit cards
3. C C annual fees from credit card customers
3. D D interest from credit card balances
4. 4. Which statement is not true about life insurance companies? Enter Letter 0 4 Financial Institutions, Markets, & Money 18
4. A A they have relatively predictable inflows and outflows.
4. B B their liabilities are long-term in nature.
4. C C they invest heavily in short-term highly marketable securities.
4. D D they sell contracts that offer financial protection against premature death and against living too long.
5. 5. Pension funds whose contributions are not large enough to actually cover the benefits to be paid out when all employees retires are termed: Enter Letter 0 5 Financial Institutions, Markets, & Money 18
5. A A unvested.
5. B B vested.
5. C C under funded.
5. D D funded.
6. 6. While life insurance protects the insured against the economic consequences of premature death, annuities protects against Enter Letter 0 6 Financial Institutions, Markets, & Money 18
6. A A the economic consequences of living too long.
6. B B varying interest rates.
6. C C aggressive beneficiaries.
6. D D default by life insurance companies.
7. 7. Which of the following laws is not associated with financial reform legislation in the wake of the Great Depression? Enter Letter 0 7 Financial Institutions, Markets, & Money 19
7. A A Securities Act
7. B B Securities Exchange Act
7. C C Glass-Steagall Act
7. D D Financial Services Modernization Act
8. 8. When an investment banker holds a security inventory to make market in a security it has just underwritten, it is performing the ________ function in the market. Enter Letter 0 8 Financial Institutions, Markets, & Money 19
8. A A registration
8. B B dealer
8. C C broker
8. D D advisory
9. 9. Mezzanine or bridge financing is provided by a venture capital firm to finance Enter Letter 0 9 Financial Institutions, Markets, & Money 19
9. A A seasonal inventory needs.
9. B B long-term capital needs.
9. C C before the IPO.
9. D D research and development.
10. 10. National-chartered commercial banks are regulated by Enter Letter 0 10 Financial Institutions Management: A Risk Management Approach 2
10.A A the FDIC only.
10.B B the FDIC and the Federal Reserve System.
10.C C the Federal Reserve System only.
10.D D the FDIC, the Federal Reserve System, and the Comptroller of the Currency.
11. 11. Money center banks are considered to be any bank which Enter Letter 0 11 Financial Institutions Management: A Risk Management Approach 2
11.A A has corporate headquarters in either New York City, Chicago, San Francisco, Atlanta, Dallas, or Charlotte.
11.B B is a net supplier of funds on the interbank market.
11.C C relies almost entirely on nondeposit and borrowed funds as sources of liabilities.
11.D D does not participate in foreign currency markets.
12. 12. A large number of the thrift failures in the 1980s was a result of Enter Letter 0 12 Financial Institutions Management: A Risk Management Approach 2
12.A A interest rate risk exposure.
12.B B excessively risky investments.
12.C C fraudulent behavior on the part of managers.
12.D D all of the above.
13. 13. Insurance policy benefits are classified on the FI’s balance sheet as Enter Letter 0 13 Financial Institutions Management: A Risk Management Approach 3
13.A A liabilities, because the insurance company may have to pay out the benefits.
13.B B assets, because policy benefits are valuable.
13.C C liabilities, because customers may fall behind on their premium payments.
13.D D assets, because policy benefits are fully covered by premium payments.
14. 14. The surrender value of an insurance policy is Enter Letter 0 14 Financial Institutions Management: A Risk Management Approach 3
14.A A the expected payment commitment on existing policy contracts.
14.B B a fund established and held separately from the company’s other assets.
14.C C the cash value paid to the policyholder if the policy is surrendered before it matures
14.D D b and c of the above.
15. 15. The primary responsibility of the Federal Open Market Committee (FOMC) is to Enter Letter 0 15 Financial Institutions, Markets, & Money 2
15.A A set monetary policy
15.B B supervise and examine member banks.
15.C C guarantee excess reserves to National Banks.
15.D D enforce margin requirements
16. 16. The Fed’s primary tools of monetary policy include all the following except Enter Letter 0 16 Financial Institutions, Markets, & Money 2
16.A A changing the discount rate.
16.B B open market operations.
16.C C adjusting reserve requirements.
16.D D changes in the Federal Funds rate.
17. 17. Monetary policy impacts the economy Enter Letter 0 17 Financial Institutions, Markets, & Money 3
17.A A by affecting real spending directly.
17.B B by affecting real spending through the financial sector.
17.C C by changing interest rates and the cost of housing.
17.D D all of the above
18. 18. Generally, plant and equipment investment spending will decrease if Enter Letter 0 18 Financial Institutions, Markets, & Money 3
18.A A interest rates rise while inflation remains unchanged.
18.B B inflation decreases while interest rates remain unchanged.
18.C C reserve requirements rise.
18.D D any of the above
19. 19. Regulations limiting risk taking of financial institutions are imposed because Enter Letter 0 19 Financial Institutions, Markets, & Money 16
19.A A the costs of regulation exceeds the benefits.
19.B B the private costs of failure exceed the social costs of failure.
19.C C the social costs of a general bank failure exceed the private costs to shareholders.
19.D D risk is harmful.
20. 20. Nonfederal deposit insurance arrangements have failed primarily because Enter Letter 0 20 Financial Institutions, Markets, & Money 16
20.A A not all banks participated.
20.B B the amount of the deposit funds were not adequate.
20.C C there was never a "deep pocket" backing such as the Federal Reserve System to prevent bank panics in the first place.
20.D D the FDIC worked hard to undermine the confidence in the nonfederal insurance arrangements.
21. 21. What type of risk focuses upon mismatched asset and liability maturities and durations? Enter Letter 0 21 Financial Institutions Management: A Risk Management Approach 7
21.A A Liquidity risk.
21.B B Interest rate risk.
21.C C Credit risk.
21.D D Foreign exchange rate risk.
22. 22. The risk that a German investor who purchases British bonds will lose money in trying to D convert bond interest payments made in pounds sterling into euros is called Enter Letter 0 22 Financial Institutions Management: A Risk Management Approach 7
22.A A liquidity risk.
22.B B interest rate risk.
22.C C credit risk.
22.D D foreign exchange rate risk.
23. 23. Because of its simplicity, smaller depository institutions still use this model as their primary measure of interest rate risk. Enter Letter 0 23 Financial Institutions Management: A Risk Management Approach 8
23.A A The repricing model
23.B B The maturity model
23.C C The duration model
23.D D The convexity model
24. 24. A positive gap implies that an increase in interest rates will cause a(n) _____in net interest income. Enter Letter 0 24 Financial Institutions Management: A Risk Management Approach 8
24.A A no change
24.B B decrease
24.C C increase
24.D D an unpredictable change
25. 25. Which of the following statements about leverage adjusted duration gap is true? Enter Letter 0 25 Financial Institutions Management: A Risk Management Approach 9
25.A A It is equal to the duration of the assets minus the duration of the liabilities.
25.B B Larger the gap in absolute terms, the more exposed the FI is to interest rate shocks.
25.C C It reflects the degree of maturity mismatch in an FI’s balance sheet.
25.D D It indicates the dollar size of the potential net worth.
26. 26. The duration of a consol bond is Enter Letter 0 26 Financial Institutions Management: A Risk Management Approach 9
26.A A less than its maturity.
26.B B infinity.
26.C C 30 years.
26.D D more than its maturity.
27. 27. What is defined as the risk related to the uncertainty of an FI’s earnings on its trading portfolio caused by changes, and particularly extreme changes in market conditions? Enter Letter 0 27 Financial Institutions Management: A Risk Management Approach 10
27.A A Interest rate risk
27.B B Credit risk
27.C C Sovereign risk
27.D D Market risk
28. 28. Daily earnings at risk (DEAR) is calculated as Enter Letter 0 28 Financial Institutions Management: A Risk Management Approach 10
28.A A the price sensitivity times an adverse daily yield move.
28.B B the dollar value of a position times the price volatility.
28.C C the dollar value of a position times the potential adverse yield move.
28.D D the price volatility times the ÖN.
29. 29. Which of the following statements about the money market is true? Enter Letter 0 29 Financial Institutions, Markets, & Money 7
29.A A The money market is a dealer market linked by efficient communications systems.
29.B B Money market transactions are seldom over $1 million.
29.C C Money market transactions include more "primary market" trades for a security than secondary market trades.
29.D D Most money market transactions are conducted by mail.
30. 30. Banks can satisfy their short-term borrowing needs by Enter Letter 0 30 Financial Institutions, Markets, & Money 7
30.A A Federal Funds purchased.
30.B B Federal Funds sold.
30.C C issuing negotiable CDs.
30.D D both a and c
31. 31. Which of the following would be least likely to purchase a tax-exempt municipal bond? Enter Letter 0 31 Financial Institutions, Markets, & Money 8
31.A A commercial bank
31.B B casualty insurance company
31.C C mutual fund
31.D D individuals in low tax brackets
32. 32. The largest investor in municipal bonds are Enter Letter 0 32 Financial Institutions, Markets, & Money 8
32.A A property and casualty insurance companies
32.B B commercial banks
32.C C households
32.D D mutual funds
33. 33. All of the following bond terms relate to maturity except Enter Letter 0 33 Financial Institutions, Markets, & Money 8
33.A A serial.
33.B B debenture.
33.C C sinking fund.
33.D D call provision.
34. 34. The demand for junk bonds came primarily from Enter Letter 0 34 Financial Institutions, Markets, & Money 8
34.A A life insurance companies
34.B B savings & loans association
34.C C pension funds
34.D D all of the above
35. 35. Exchange rate risk is best described as Enter Letter 0 35 Financial Institutions, Markets, & Money 12
35.A A the cost of a unit of currency in terms of another.
35.B B the variability in the current accounts balance of the balance of payments.
35.C C the variability of investment returns or prices of goods and services caused by changes in the value of one currency versus another.
35.D D the difference between domestic and international interest rates.
36. 36. Which of the following are largely responsible for keeping exchange rates the same in all world markets? Enter Letter 0 36 Financial Institutions, Markets, & Money 12
36.A A foreign exchange deals
36.B B forward markets
36.C C futures markets
36.D D arbitragers
37. 37. Which of the following factors is an important consideration in international lending? Enter Letter 0 37 Financial Institutions, Markets, & Money 15
37.A A credit risk
37.B B country risk
37.C C currency risk
37.D D all of the above
38. 38. The purpose of the International Banking Act of 1978 was to Enter Letter 0 38 Financial Institutions, Markets, & Money 15
38.A A return the competitive edge to U.S. banks.
38.B B return competitive equality between domestic and foreign banks.
38.C C slow down the competitiveness of foreign banks.
38.D D none of the above
39. 39. Which of the following legislations allowed banks and thrifts to expand geographically across state lines by acquiring the assets of failed thrifts? Enter Letter 0 39 Financial Institutions Management: A Risk Management Approach 22
39.A A Bank Holding Company Act
39.B B McFadden Act
39.C C Financial Institutions Reform, Recovery, and Enforcement Act
39.D D Douglas amendment
40. 40. An agreement to allow competition from certain geographic areas, usually in return for the ability to compete within those areas, is Enter Letter 0 40 Financial Institutions Management: A Risk Management Approach 22
40.A A a federal charter.
40.B B an integrated agreement.
40.C C a holding company agreement.
40.D D an interstate banking pact.

Answer Key and Scoring Summary

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Answer Key/Grading Sheet
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Problem Summary

Problem # Week Textbook Chapter
1 1 Financial Institutions, Markets, & Money 13
2 1 Financial Institutions, Markets, & Money 13
3 1 Financial Institutions, Markets, & Money 13
4 1 Financial Institutions, Markets, & Money 18
5 1 Financial Institutions, Markets, & Money 18
6 1 Financial Institutions, Markets, & Money 18
7 1 Financial Institutions, Markets, & Money 19
8 1 Financial Institutions, Markets, & Money 19
9 1 Financial Institutions, Markets, & Money 19
10 1 Financial Institutions Management: A Risk Management Approach 2
11 1 Financial Institutions Management: A Risk Management Approach 2
12 1 Financial Institutions Management: A Risk Management Approach 2
13 1 Financial Institutions Management: A Risk Management Approach 3
14 1 Financial Institutions Management: A Risk Management Approach 3
15 2 Financial Institutions, Markets, & Money 2
16 2 Financial Institutions, Markets, & Money 2
17 2 Financial Institutions, Markets, & Money 3
18 2 Financial Institutions, Markets, & Money 3
19 2 Financial Institutions, Markets, & Money 16
20 2 Financial Institutions, Markets, & Money 16
21 3 Financial Institutions Management: A Risk Management Approach 7
22 3 Financial Institutions Management: A Risk Management Approach 7
23 3 Financial Institutions Management: A Risk Management Approach 8
24 3 Financial Institutions Management: A Risk Management Approach 8
25 3 Financial Institutions Management: A Risk Management Approach 9
26 3 Financial Institutions Management: A Risk Management Approach 9
27 3 Financial Institutions Management: A Risk Management Approach 10
28 3 Financial Institutions Management: A Risk Management Approach 10
29 4 Financial Institutions, Markets, & Money 7
30 4 Financial Institutions, Markets, & Money 7
31 4 Financial Institutions, Markets, & Money 8
32 4 Financial Institutions, Markets, & Money 8
33 4 Financial Institutions, Markets, & Money 8
34 4 Financial Institutions, Markets, & Money 8
35 5 Financial Institutions, Markets, & Money 12
36 5 Financial Institutions, Markets, & Money 12
37 5 Financial Institutions, Markets, & Money 15
38 5 Financial Institutions, Markets, & Money 15
39 5 Financial Institutions Management: A Risk Management Approach 22
40 5 Financial Institutions Management: A Risk Management Approach 22